Bond-investing guru Jeffrey Gundlach predicted on Wednesday that the odds of a recession before the 2020 presidential election are rising.
“I think the economic data has gotten a little bit better, yet I still think, when we put it all together ... it seems that there is an increasing probability of a recession before the 2020 election,” the DoubleLine Capital CEO told CNBC.
Though Gundlach said he looks at a variety of measures when trying to gauge recession odds, his preferred indicator is a measure of consumer sentiment.
He explained said the metric he likes shows that consumers feel more and more grim about the future but still feel OK about the present, a divergence that typically occurs before recessions, CNBC.com explained.
“What happens before recession every time in a very convincing pattern is that first consumers start to feel bad about the future. They say ‘the future looks worse than how I feel about the present.’ And that started a while ago now, where the view of the future was much grimmer than the view of today,” Gundlach said.
“That puts you on kind of a notice, just like the yield curve inverting, that maybe you’re supposed to be on recession watch,” he added. “But then what happens is that the consumer continues to be pessimistic about the future, but then their attitudes about the present start to deteriorate. And that has started to happen.”
Once a recession does come, Gundlach predicts that there will be an explosion in the national debt.
Gundlach also warned of the recession likelihood last week, citing signals including the August yield-curve inversion that has resteepened this month.
DoubleLine Total Return, which invests mostly in mortgage-backed securities, returned about 5.4% this year through Sept. 17, better than 72% of its Bloomberg peers. Its five-year annual average return is 3.4%, better than 82% of rivals.
Material from Bloomberg and Reuters has been used in this report.
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